On July 1, 2016, Trust A`s agent decided to provide an interest-free loan to person D. In pcG 2017/13, the Commissioner maintains that he clearly expects this duration of the investment agreement to be respected and that the capital of the loan subscribed under Option 1 of investment must be repaid at the end of the term of the loan”. The Commissioner considers that even if it is not converted into an ordinary loan, a UPE can be assimilated to “the financial making available” by the beneficiary of the private enterprise in favour of the trust and can therefore be considered a loan for the purposes of Division 7A. It applies to all types of trusts, including trusts and discretionary investment funds, and is particularly relevant in cases where the trust and the private enterprise are part of the same family group. However, in this guide, the ATO also offers a solution for agents who are faced with the obligation to repay large amounts of capital. If the principal amount is not repaid in whole or in part on or before the maturity date, the ATO agrees that a seven-year loan that meets the requirements of Section 109N (interest rate at the reference rate, minimum annual repayments and compliance with the loan agreement) may be set up between the trusted subfisselle and the private company before the date of filing of the income tax return. of the private enterprise for the year of income. In the sub-trust matures. You should also keep in mind that the EA subdivision of Division 7A may continue to apply if the trust makes a payment or loan to a shareholder or partner of the shareholder of the private company or subcontracts the debts of a shareholder of the private company, as long as there is a PRIVATE COMPANY UPE to trust income, including all UPEs before 16 December 2009. This conceded approach adopted by the ATO is welcomed as it provides some respite for taxpayers faced with the management and financing of future repayment obligations under Option 1 agreements due during the 2017 and 2018 income years. BDO can help clients manage deadlines to ensure they benefit from the changes, including repaying the loan amount and final interest before the 30th. June 2018 and the creation of new seven-year loans before the filing of the private company.
We will consider a document containing the following to be sufficient evidence of a legally binding loan agreement between the main trust and the sub-trust: the interest paid by the main trust to the sub-trust would normally not be deductible from the main trust if the funds lent by the main trust are not used for commercial or other income-generating purposes. Please note that this press release does not consider the consequences of the other sub-trust options described in PSLA 2010/4 (for example. B investment option 2 – UPE funds invested in a 10-year interest-free loan). In addition, no account is taken of the actions that may be taken by the option 1 fiduciary agreements (seven-year interest only) that will be entered into in subsequent income years. It is likely that the ATO will be able to make follow-up statements for these subsequent years and we will inform customers of further developments. In my last article, I stressed the importance of companies correctly applying Division 7A and the heavy tax penalties that can be imposed if you do it wrong. . .